Scope of Life Insurance

• Premiums as low as Rs.17/day for sum assured of Rs.1 crore*
• Claim up to Rs. 1,50,000 deduction under section 80C**
• Choose between annual and monthly premium payment options

The main aim of a life insurance cover is to secure the needs of dependents after one’s untimely death. In addition to the emotional suffering, the financial insecurity arising out of losing the primary earner can be immense. This is the reason why most personal finance experts suggest that life insurance should be the main part of one’s investment planning. In India, life insurance is yet to reach its full potential as the awareness about life insurance products is pretty low. While the Indian life insurance industry has witnessed a lot of transformation ever since the entry of private players, it still has a long way to go in terms of protecting the entire population of our country.

How life insurance works

Life insurance is basically a contract between two parties — an insurance company and an individual — wherein the company guarantees the payment of compensation to the insured’s dependents in case of his/her untimely death within the predetermined policy term. There are different types of life insurance products available in the market. All life insurance covers pay a lump sum death benefit following the unexpected death of the policyholder within the policy term. Savings/investment-oriented life insurance policies may also accumulate additional bonuses during the course of the policy term.

Life insurance industry in India

The Indian life insurance industry witnessed a major transformation in the year 2000 due to the entry of various private players. As of now, there are 24 companies competing with each other in the life insurance industry. This intense competition has created an opportunity by providing a lot of choices for customers. Though there are a lot of takers for life insurance in India, the country’s overall insurance penetration is just 2.72% according to the Economic Survey 2018. The potential to grow is extremely high in the Indian life insurance market. This is the main reason why the industry continues to attract new entrants. Most importantly, this change has led to the adoption of various regulatory changes and consumer-centric practices in the life insurance industry.

Types of life insurance policies

Life insurance policies can be broadly classified into traditional life insurance policies and non-traditional life insurance policies. Except for ULIPs, most of the following types of life covers come under traditional policies:

• Term insurance: Since there is no maturity benefit associated with term insurance, it is considered to be the purest form of life insurance coverage. This policy pays lump sum benefit to the insured’s dependents upon his/her untimely death during the policy term. If the insured outlives the policy term, the coverage will terminate without any maturity benefits.
• Unit-linked insurance plans (ULIPs): This is a non-traditional life insurance cover offered by insurers. As the name implies, this policy is linked to the market and the maturity benefits are based on the policy’s earnings in the market. Customers are free to choose the type of funds based on their risk appetite.
• Endowment plans: These are life insurance policies that have a savings aspect along with life insurance protection. One of the notable aspects of endowment policies is that they provide guaranteed returns, unlike ULIPs. There are different types of endowment covers available in the market. Most endowment policies provide bonus payments along with the maturity benefit.
• Whole-life insurance: This is a traditional plan wherein the life insurance coverage is offered through the entire life (maximum of 100 years) of the insured person. Following the death of the insured, his/her dependents will get the benefit amount. The premium payment period is fixed at a specific number of years for this policy.
• Child insurance plan: This policy is mainly designed to secure the future educational/marriage needs of a child. A parent can take this policy to protect his/her child’s future. If the parent dies during the policy term, the future premiums are waived and the child will get the maturity benefit at the end of the policy term.
• Retirement plans: These plans are famous among career-oriented individuals. It allows people to build a corpus for their retirement and secure their post-retirement needs. People also invest in pension plans to get regular income following their retirement.

How life insurance can protect your family

Most of the nuclear families in India have only one primary earner. The unexpected loss of the primary earner can have devastating consequences on a family’s financial security. Undergoing a major financial crunch along with the emotional burden can result in major trauma for the family. Life insurance aims to avoid this situation by protecting the life of the insured person against unexpected eventualities. The family of the insured person can manage their future expenses with the lump sum payment received from the company. Hence, life insurance can safeguard a family from a critical situation associated with the loss of a primary earner.

Benefits of life insurance

Death and maturity benefits are the most obvious benefits of life insurance covers. However, there are many other benefits offered by life insurance policies apart from these two. The overall benefits offered by life insurance covers are listed as follows:

• Death benefit: This refers to the lump sum payment received by the family of the insured person. The death benefit is typically the sum assured amount chosen by the policyholder at the time of signing up for the policy.
• Maturity benefit: This refers to the payment received by the policyholder if he/she outlives the chosen policy term. There are no maturity benefits in term covers. However, other covers like endowment plans, ULIPs, retirement plans, etc., offer maturity benefits for policyholders. Maturity benefits typically have bonus payments provided by the company.
• Loan facility: This is not applicable to term insurance covers. Other investment-oriented plans provide loan facility up to the extent of the surrender benefit of the policy. Individuals can choose the repay the loan amount or use their accumulated policy benefits to pay off the loan.
• Tax benefit: The premium amount paid for a life insurance policy is exempt from income tax as per Section 80C of Income Tax Act. This tax benefit is an added advantage available for life insurance buyers.

Conclusion

Considering the time of uncertainty we live in today, it is always better to safeguard the lives of your loved ones with a life insurance policy. Life insurance can be purchased by anyone irrespective of their income. Low-income individuals can opt for a lower sum assured amount that fits within their budget. A well-planned life insurance policy might come in handy during turbulent times when a family is facing uncertainty following the loss of the primary earner.